Tech sector growth seen strongest in the S&P 500

May 19, 2008

OVERVIEW: TECHNOLOGY SECTOR – Q2 2008

MAY 2008

John Butters

Director, U.S. Earnings Research

Thomson Reuters

In the S&P 500 Index, the Technology sector is expected to have the highest earnings growth of any sector at 15%. Over the past four quarters, the sector has recorded an average earnings growth rate of 16%.

On April 1st, the estimated growth rate for the sector was 18%. Since the start of the quarter, the mean estimate for 45% of the companies in the sector has decreased while the mean estimate for 24% of the companies in the sector has increased. The mean estimate for the other 31% of the companies has remained unchanged.

At the industry level, twelve of the fourteen industries that comprise the sector are anticipating earnings growth. The largest contributors to earnings growth at the industry level include the Systems Software, Computer Hardware, Semiconductors and Internet Software industries. The only two industries expecting earnings to decline compared to the Q2 2007 are the Semiconductor Equipment and Office Electronics industries.

No companies have reported earnings to date for Q2 2008 for this sector. Over the past four quarters, 73% of Technology sector companies reported earnings above analyst expectations, 12% reported earnings in-line with analyst expectations and 15% reported earnings below analyst expectations. In aggregate, companies in the Technology sector have surpassed estimates by 6% over the previous four quarters.

Looking ahead to the remainder of 2008, analysts are currently calling for growth of 12% for both Q3 2008 and Q4 2008. For all of 2008, the estimated growth rate is 13%. For 2009, the estimated growth rate is 18%.

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